Taxes on Business Income in New York
New York imposes a corporate income tax on both regular and S corporations that do business in New York.
In New York, you're generally free to choose to operate your business as a C corporation, S corporation, partnership, limited liability company (LLC), or sole proprietorship. However, the entity type you select for your business determines what type of fees and taxes you and your business pay for your business and on your business income.
C Corporations Are Subject to Franchise Tax
New York imposes a tax on domestic and foreign corporations for exercising their corporate franchise, for doing business, employing capital, owning or leasing property, or maintaining an office in New York state. This is true for both regular C corporations and S corporations. Therefore, this tax will apply to you if you do business as a corporation and you exercise your corporate franchise or conduct certain activities within the state.
The New York corporate income tax is sometimes referred to as a franchise tax; however, it is measured by net income and by the value of subsidiary capital allocated to New York. (New York net income is your entire federal net income with adjustments.) Your accountant or tax professional can help you determine the income from your business that's taxable in New York.
If you're a foreign corporation, you will not be subject to tax in New York if you engage solely in interstate commerce. New York will impose their franchise tax on you only if you're engaged in doing business in New York, employing capital, owning or leasing property, or maintaining an office in the state.
What does New York consider "doing business?" The term is used in a comprehensive sense and includes all activities which occupy the time or labor of persons for profit. If your corporation is organized for profit and carrying out any of the purposes of its organization, New York deems it to be doing business for purposes of the franchise tax. Also keep in mind that your corporation is subject to the New York franchise tax if it engages in the above types of activities regardless of whether it is authorized to do business in New York.
Syd's Surf and Sail, a Florida corporation, used the New York home of one of it's corporate officers to conduct business. The officer's New York residence was held out to the public as a place of business and the home was used for business meetings. Although Syd's is a Florida corporation, the above activities constituted maintaining an office (and therefore, doing business) for New York franchise tax purposes.
The concept of what does and what doesn't constitute "doing business" is by no means simple. If you are uncertain as to whether your foreign corporation may be subject to the New York franchise tax, we encourage you to speak to your tax advisor concerning this matter.
C Corporation franchise tax computation. If you are a corporation that's subject to the franchise tax, the franchise tax rate is .09 percent of your subsidiary capital plus the greater of:
- 7.1 percent of entire net income (ENI) OR
- This percentage is reduced to 6.5 percent (3.25 percent for years 2013 and 2014) for qualified in-state manufacturers)
- For small business corporations (see definition below) with ENI of $0 to $290,000, the percent is reduced to 6.5 percent
- For small business corporations with ENI of $290,001-$390,000 the tax is $18,850 plus 7.1% for amounts over $290,000 plus 4.35% for amounts over $350,000.
- 0.15 percent of capital allocated to New York (up to $350,000 for qualified in-state manufacturers or $1 million for other taxpayers) OR
- 1.5 percent of minimum taxable income allocated within New York OR
- a fixed dollar minimum tax ranging from $25 to $5,000 based on the amount of New York gross receipts (for years 2013 and 2014, one half these amounts for eligible qualified New York manufacturers).
The schedule for fixed dollar minimum tax based on New York receipts is as follows:
Fixed Dollar Minimum Tax
|Amount of Receipts ||Tax Due |
|$0-$100,000 receipts ||$25 |
|$100,001-$250,000 receipts ||$75 |
|$250,001-$500,000 receipts ||$175 |
|$500,001-$1,000,000 receipts ||$500 |
|$1,000,001-$5,000,000 receipts ||$1,500 |
|$5,000,001-$25,000,000 receipts ||$3,500 |
|over $25,000,000 receipts ||$5,000 |
Small business taxpayers subject to lower marginal tax rates. New York has a special lower marginal tax rate structure for small businesses. A small business taxpayer is a corporation that meets the following requirements:
- its entire net income (ENI) (before allocation) is not more than $390,000;
- the total amount of money and other property it received for stock, as a contribution to capital and as paid-in surplus, is not more than $1,000,000 as of the last day of its tax year; and
- the corporation is not part of an affiliated group, as defined in IRC section 1504, unless the group itself would have met the above criteria if it had filed a combined return.
S Corporations Are Subject to Franchise Tax
New York imposes a franchise tax on S corporations. New York S corporations are required to pay the fixed dollar minimum tax, ranging in amount from $25 to $4,500 based on the amount of New York gross receipts. For foreign authorized S corporations, if the total of fixed dollar minimum tax according to the schedule is less than $300, then the tax payment must be increased accordingly to satisfy the $300 annual maintenance fee requirement.
The New York State Department of Taxation and Finance has a publication that's a basic guide which provides a general overview to assist taxpayers in determining whether to elect New York S corporation status. The topics discussed include qualifications for an S election, termination and revocation of the election, New York corporate level taxation of federal S corporations, New York license and maintenance fee requirements for foreign S corporations, treatment of shareholders of both federal and New York S corporations and sales of S corporation stock. You can contact the Department of Taxation and Finance and request Publication 35, "New York Tax Treatment of S Corporations and Their Shareholders" or view it online.